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TXU takeover: Wall Street adds climate change to bottom line

Ron Scherer, The Christian Science Monitor
The environmentally tinged takeover of TXU Corp. illustrates global warming’s increased financial relevance.
NEW YORK – Wall Street now views the color green as something other than money.

In the latest sign that global climate change is becoming a major factor for investors, potentially the largest private takeover in the nation’s history has environmentalists’ fingerprints all over it.

A consortium of private investors announced Monday they would pay almost $45 billion to acquire TXU Corp., which generates electricity in the state of Texas. What makes the deal more than just another gigantic financial transaction is that the buyers of the company consulted with environmental groups and agreed to sharply scale back plans to build new coal-fired power plants.

“This is a real breakthrough, an indication investors are paying attention to the real financial risk associated with climate change,” says Dan Bakal, director of electric power programs at Ceres, a Boston-based environmental group that advises investors controlling $3.7 trillion in assets. “It means Wall Street is really beginning to pay attention.”

Wall Street analysts believe the deal could mean that future takeovers will start to factor in the cost of corporate carbon emissions.

This could affect mergers and acquisitions in a broad range of industries, including manufacturing companies, the auto industry, mining companies, and other utilities.
(27 Feb 2007)

Energy Firm Accepts $45 Billion Takeover
Buyers Made Environmental Pledge

Steven Mufson and David Cho, Washington Post
TXU, the largest energy provider in Texas, agreed last night to a $45 billion buyout that would not only be the largest private-equity deal in history but would also feature an unusual twist: The buyers have promised environmental groups they would cancel a slew of coal-fired power plants on the firm’s drawing boards.

The buyout firms’ deal with environmental groups, which could become a landmark in the battle over climate-change policy, would force an abrupt turnaround in the strategy of TXU, which has defied environmentalists’ and congressional criticism of its plans to expand coal use and carbon dioxide emissions.
(26 Feb 2007)
Related story at NY Times: In Big Buyout, Utility to Limit New Coal Plants

David Roberts of Gristmill explains:

Holy sh*t! This is huge …

The “tipping point” concept is cheap from overuse these days, but to me this is the clearest sign yet that we have entered a fundamentally new stage in the fight against global warming. It’ll take a while to fully sink in, but here are a few thoughts:

TXU’s emissions U-turn shocks power industry

Jasmina Kelemen, MarketWatch
TXU Corp.’s decision to whittle down plans to build 11 carbon-spewing, coal-fired power plants as part of its buyout deal with private-equity firms sent a chill Monday through both Wall Street and Washington, signaling that utilities can no longer afford to ignore climate change.

But with coal becoming too toxic to handle, nuclear plants taking too long to build and natural-gas prices going through the roof, little in the way of specifics is being offered on how utilities will provide clean and affordable power to an energy-hungry nation as more states push to deregulate their electrical grid and open it to the market’s machinations.

Environmentalists cheered the announcement that TXU was axing eight of 11 coal-fired power plants that it had planned to build in Texas by 2010 as part of a $45 billion buyout deal with Kohlberg Kravitz & Roberts., Texas Pacific Group and Goldman Sachs Group.
(26 Feb 2007)

Before regulation hits, a battle over how to build new US coal plants

Moises Velasquez-Manoff, Christian Science Monitor
Environmentalists and economists are wrestling with how to meet growing energy demand responsibly.
…As America’s appetite for energy grows, environmentalists and some lawmakers argue that new coal-fired plants should use the newest – albeit more expensive – technology available to keep coal-produced pollutants in check. But some in the power industry counter that guessing about future regulations and investing in new, largely untested technology is no way to run a business.

The fact is, demand for energy in the United States is projected to increase 1.1 percent each year through 2030. Economists say cheap and abundant energy is necessary to maintain a vibrant and healthy economy. Faced with ever higher oil prices and possessing ample reserves – more than any other single country – the obvious choice for the US is coal, say experts.

Indeed, there are some 150 proposed coal-fired plants across the country, according to the National Energy Technology Laboratory. But the vast majority of these plants, Desert Rock included, utilize what critics call “old” technology – pulverized coal (PC), rather than the technology known as Integrated Gasification Combined Cycle (IGCC), which captures pollutants more efficiently.

Nationwide, the proposed plants are receiving scrutiny from lawmakers concerned with climate change as well as from citizens who would live near them. The utilities industry finds itself caught “on the horns of a dilemma” about how to proceed before regulations are in place, says Bruce Driver, an independent water and energy consultant in Boulder, Colo.
(22 Feb 2007)